referral fees

Started by LaskaS • 14 replies • 284 views

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LaskaS (Texas)
Posts: 1,025

Posted:

Question regarding referral fees.
a resident in our condominium referred a painting and restoration company to the association to bid on a contract to paint all the buildings. Apparently there was a finders fee if the company ended up winning the contract.

backround.

the resident was not involved in decision making. At the time the resident referred the company, they were not on the board or any committees.

The referred company's bid on the project was over $100,000 less than the next bid.

6 months after the contract was awarded, resident was elected to the board. The resident,now board member, contends that they are not required to disclosed anything regarding a previously negotiated referral fee.

I'm not sure how i feel about this. On the one hand, the referral saved the association a huge amount of money. The company has done great work.

On the other hand. now that the resident is on the board, should they have disclosed the referral fee.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

What for? A tongue wagging excersise? The referral fee was a personal transaction between vendor and them. The HOA had no receipt of funds or influence from it. They just was able to find a company for the job. That is as far as it goes.

Former HOA President

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By LaskaS on 06/30/2023 7:05 AM
Question regarding referral fees. ...
6 months after the contract was awarded, resident was elected to the board. The resident,now board member, contends that they are not required to disclosed anything regarding a previously negotiated referral fee. ...
now that the resident is on the board, should they have disclosed the referral fee[?]

In my opinion Texas statute BO 22.230 clarifies the situation and the obligations of all parties here. Assuming there is not an ongoing relationship involving the exchange of money, from BO 22.230 I say the board member does not have to disclose anything at this time. This is because there is no ongoing "contract" or "transaction" between the director and the company. (At least that anyone knows of. And the latter is the best that can be done, for all the directors.)

I would tread carefully here. This is an issue where one can make an enemy, and possibly unnecessarily. I think it's important not to assume.

LaskaS (Texas)
Posts: 1,025

Posted:

What if the referral fee was agreed to a year ago. apparently there is a signed agreement between the owner and the company.
the company was awarded the contract by a vote of the board(the owner was not part of the board when contract was voted on) in November.

The referral fee has not been paid. We were informed the referral fee is paid at the conclusion of the work . The contractor would not pay the referral fee until they were paid.

LaskaS (Texas)
Posts: 1,025

Posted:

It came to our attention because the contractor complained that they are not making the profit they anticipated. The contractor came to two board members and told us about the referral fee.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Then that is the contractor playing games. Seen that before. They bid the job too low and then come back at you with nickel and dime stuff to jack up the bid. This is not the owner who recommended them. This is that company tactics.

I know because our ex president played a similar game with us when he got bids on anything. Remind them what the bid was. If the extra expense sounds reasonable then pay it. However if it for supplies a company should have then no not paying for their supplies if not in the bid. He used to ask for additional money for paint brushes... He was a painter. This is your company supply not whom hired you to paint...

Former HOA President

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By LaskaS on 06/30/2023 7:46 PM
What if the referral fee was agreed to a year ago. apparently there is a signed agreement between the owner and the company.
the company was awarded the contract by a vote of the board(the owner was not part of the board when contract was voted on) in November.

The referral fee has not been paid. We were informed the referral fee is paid at the conclusion of the work . The contractor would not pay the referral fee until they were paid.

I think this muddies things up. Trying to parse (and really, guess at) whether the statute requires the director to disclose is a pain in the neck.

As far as I am concerned, an ethical director would just disclose the relationship and comply with BO 22.230. Why would a director in this situation not want to just make this easy on all?

If the director is resisting, very dryly explain the conundrum into which he or she is putting the corporation. Inform the director that having to pay the HOA attorney for a consult on this issue is a disservice to the owners, and the director should be trying to minimize costs to the owners.

I would support the board asking the director to disclose this relationship and comply with BO 22.230. To me, the latter statute section means, at a minimum, the owner discloses his/her relationship with the contractor. If the director will not do this, then the board should get some kind of written verification from the contractor that there is some kind of financial relationship, and then announce this to owners, pursuant to BO 22.230.

And to indicate what a pain in the arse that I think this is: From reading BO 22.230, as of this writing, I cannot tell quickly if this director is allowed to vote on issues involving the contractor.

TerriS6 (California)
Posts: 3,284

Posted:

A conflict of interest for sure especially if not paid yet. Person should have disclosed the conflict when running for board. Person could relinquish getting the fee and publicize it. It's kind of late to publicize and recuse.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I still do not see a conflict of interest issue at all. It's simply they hired this company who offers a referral fee if they get hired on another job. That could have simply been anyone including a neighbor. The issue is this company is now trying to milk the HOA for more money as they think they have money. If I was the person who referred them (BEFORE THEY WERE ON THE BOARD) I would be embarrassed. They thought they did a good thing by recommending them just to see this company try to milk out their HOA.

It's kind of like at my work. You can get a referral fee for recommending someone. If they get hired, then you get money. Sounds great until if you recommend someone who turns out to be a turd of a worker. That is why in my industry we don't recommend anyone we don't feel can't do the job. That is because it reflects on us if they do. I had a friend who wanted me to recommend their spouse. They got the interview and was asked if they should hire them. I told them "no". Why? Because knew their history of missing work at their current job. It was why they were looking for a job before their job fired them for it.

So this could be a case where the person didn't know the company they referred was going to see dollar signs in their eyes once the HOA hired them.

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

The owner was not on the BOD and had no influence over who got the contract thus I have no problem with the referral fee. Also the contractor is trying to nickel and dime the association.

TerriS6 (California)
Posts: 3,284

Posted:

ElleN above is right. The main problem is she has not been paid yet. So she has an undisclosed direct financial interest in this contractor working for the association, and should not be discussing or voting on anything to do with the contractor.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By TerriS6 on 07/01/2023 8:23 AM
ElleN above is right. The main problem is she has not been paid yet. So she has an undisclosed direct financial interest in this contractor working for the association, and should not be discussing or voting on anything to do with the contractor.

I agree.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I did not see where she was not paid her referral fee. All I saw is that they recommended the company after they did work for them. The company offers a referral fee based on if they get hired for another job associated with their name. That person was NOT on the board at the time. Plus did NOT vote to hire the contractor. Again the deal with the referral fee is with the company and the person who did the referring.

Now if they did not pay them the referral fee AND they are nickel and diming the HOA, this is a company I would look into replacing. Guess what? That new board member owed referral money is NOT going to vote Yes... You would put me down for a big fat "NO" vote if the subject came up.

Fool me once, Fool me twice it's a no-go...

The new board member may need to bring it up ONLY if it a factor in the company's past history as an example of their work or lack of payment. Which should have looked at the BBB reviews online...

Former HOA President

LaskaS (Texas)
Posts: 1,025

Posted:

The owner referred the contractor to the association. At the time, the association was getting numerous bids for a painting project.
The board after comparing 4 different detailed bids chose the contractor.

When he ran for the board and was elected, he has not voted on anything to do with the contract. The contract was awarded last year.

It seems to me that the contractor is angry because the owner(now board member) in question has on 3 different occasions observed that work being done was not in accordance with the contractual scope. He then notified the property manager who is the designated contact person.

The property manager followed up and asked that the incorrect work be corrected. Having to do the work as agreed to in the original scope did cost the contractor more money.

I agree that the board member should recuse themselves from anything to do with this contract going forward.

The refferal fee arrangement(still not sure what it is) was a private agreement between the company and the owner.

I think the owner(board member) will have to take it up with the contractor if the contractor fails to pay, It has nothing to do with the association.

It has opened a can of worms. The bid submitted by the contractor was based on the same scope every other contractor bid on.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By LaskaS on 07/01/2023 10:13 AM
It seems to me that the contractor is angry because the owner(now board member) in question has on 3 different occasions observed that work being done was not in accordance with the contractual scope. He then notified the property manager who is the designated contact person.

Oh great. Personal tit for tat. Drama and conflict. Like you posted: A can of worms.

I suggest: Try to be automaton-like about this. Address only what statutes, the contract and covenants and bylaws say the board should address.

Quote:

Posted By LaskaS on 07/01/2023 10:13 AM
The refferal fee arrangement(still not sure what it is) was a private agreement between the company and the owner.

For what it is worth, it's not entirely private as long as it is a conflict of interest, or looks like a conflict of interest, pursuant to BO 22.230 .

If the director is not forthcoming, and it has proof from the contractor of this agreement (even if it is only an affidavit), and the director does not deny the affidavit (give the director fairness or a fair hearing), then I suggest the board should not hesitate to simply not count this director's vote in decisions about the contractor. Do not make a big deal out of it. I expect this association board has plenty else to keep it busy.

1.5 cents from the cheap seats

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